Decomposition of the Variation of Corporate Tax Revenues : Based on Consideration of Corporate Tax Paradox-

In recent years, some foreign countries have seen their ratio of corporate tax revenue to gross domestic product (GDP) increase despite reductions in their corporate tax rates. This phenomenon is called the gcorporate income tax rate-revenue paradox. h In this paper, we surveyed preceding studies on the corporate tax paradox and made a factor analysis of changes in corporate tax revenues since the 1980s. It has been pointed out that factors behind the emergence of the corporate tax paradox in some foreign countries include, firstly, an expansion of the taxation base, concomitantly with the lowering of the corporate tax rates helped curb the decline in the effective tax rate and, secondly, lowering tax rates induced self-employed individuals to convert their businesses into corporate entities, with the expanded corporate sector contributing to larger corporate tax revenues. On the other hand, Japan is one of the countries where the corporate tax paradox has not been evident, and particularly in the 1990s, corporate tax revenues in Japan dropped substantially with the reduction in the tax rate. The decline in the effective tax rate is the primary factor responsible for this downturn, which resulted from both a taxation system factor, being the lowering of the statutory tax rate, and an economic factor, being an increase in extraordinary losses and allowances for losses carried forward reported by companies due to the economic slowdown. In addition, no clear moves toward the conversion of selfemployed individuals into corporate entities associated with corporate tax reform have been observed in Japan.